Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2018March 31, 2019

For the transition period from ___________to ____________

Commission File Number 000-55345

ZERO GRAVITY SOLUTIONS, INC.
(Exact name of businessregistrant as specified in its charter)

190 NW SPANISH RIVER BOULEVARD, SUITE 101, BOCA RATON, FLORIDA 33431

(Address, including zip code, of principal executive offices)

(561) 416-0400

(Issuer’sRegistrant’s telephone number)number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.

Title of each class = Trading Symbol(s) = Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☐ No ☒ The Company has not filed its Quarterly Report on Form 10-Q for the quarterly periods ended June 30, 2019, September 30, 2019 and March 31, 2020 and it's Annual report on Form 10-K for the year ended December 31, 2019.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☐ No ☒ See above

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 1, 2018,July 31, 2020, the issuer had 40,954,11539,678,555 shares of common stock issued and outstanding.

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operationsOperations

Zero Gravity Solutions, Inc. (the “Company”) is aan agricultural biotechnology company focused on commercializing technology derived from and designed for spaceflight with significant applications on Earth. These technologies are focused on improving world agriculture by providing valuable solutions to challenges facing humanity including threats to world agriculture and the ability to feed the world’s rapidly growing population.

The Company owns proprietary technology for its initial commercial product, BAM-FX™BAM-FX^® that can boost the nutritional value and enhance the immune system of food crops without the use of Genetic Modification.genetic modification. The Company’s focus is the commercialization of BAM-FX™BAM-FX^® in both domestic and international markets. The Company’s headquarters are located in Boca Raton, Florida. 

The Company operates through two wholly owned subsidiaries: BAM Agricultural Solutions, Inc. a Florida corporation (“BAM”), which was formed in 2014, and Specialty Agricultural Solutions, Inc. (“SASI”), which was formed in 2018 and began operations in 2019. The Company owns 98% of SASI.

Another subsidiary of the Company, Zero Gravity Life Sciences, Inc., botha Florida corporationscorporation (“ZGLS”), was formed by the Company in 2014. ZGLS is currently inactive.

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The COVID-19 pandemic has the potential to significantly impact the Company’s supply chain, distribution centers, or logistics and other service providers. During the first quarter of 2020, the Company furloughed all employees other than the three executive officers to the COVID-19 impact on its operation capability. Beginning in the second quarter of 2020 the company began to remove certain employees from furlough that are key to ongoing operations. The Company is not able to estimate the duration of the pandemic and potential impact on the business if disruptions or delays in shipments of product occur. To date, the Company has experienced product shipment delays due to import restrictions imposed by countries in which the Company had customer purchase commitments. In addition, a severe prolonged economic downturn could result in a variety of risks to the business, including weakened demand for product and a decreased ability to raise additional capital when needed on acceptable terms, if at all. As the situation continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly. 

Going Concern and Management’s Plans 

These interim unaudited condensed consolidated financial statements are prepared on a going concern basis which contemplates the realization of assets and settlements of liabilities and commitments in the normal course of business.

The Company has a working capital deficiency as of March 31, 2019, and a net loss and negative cash flows from operating activities for the three months then ended. At June 30, 2018,March 31, 2019, the Company had an approximate cash balance of $994,000,$3,000 and a working capital deficiency of approximately $(382,000), a$(4,364,000) and had net loss from operations of approximately $(2,644,000)$(1,231,000), and negative cash flows from operating activities of approximately $(1,832,000).$(643,000) for the three months ended March 31, 2019. To date, the Company has relied on equity financing and has entered into related and non-related party promissory notes to fund its operations. The Company has also issued stock-based compensation in exchange for services. Although the Company intends to raise additional capital, the Company expects to continue to incur losses from operations and have negative cash flows from operating activities for the near-term and these losses could be significant as product development, regulatory, contract research, and technical marketing personnel related expenses are incurred. Management has evaluated its ability to continue as a going concern for the next twelve months from the issuance of these June 30, 2018 unauditedinterim, condensed consolidated unaudited financial statements, and has determined that there is substantial doubt as to its ability to continue as a going concern. The Company has satisfied its obligations using cash from successful capital raising efforts through June 30, 2018,March 31, 2019; however, there are no assurances that such successful efforts will continue for up to a year after these unaudited condensed consolidated financial statements are issued. TheThese interim unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. The Company has executed product distribution agreements with domestic and international commercial agricultural distributors and generated initial product orders. Additional technical and marketing effortefforts must be devoted to those distributors to insureensure the product is properly utilized and validated by end users. To fund these capital needs, the Company has and continues to raise capital through a private placement offering in connection with its investment banker and through its internal efforts, as well as raising funds through issuances of debt. Subsequent to June 30, 2018,March 31, 2019, the Company has raised approximately $1,050,000 in debt financing.$3,824,000 (Note 7). If the Company does not obtain additional capital, the Company would potentiallywill be required to reduce the scope of its business development activities or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels. 

Management’s strategic plans include the following:

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2018March 31, 2019

(Unaudited)

Interim Financial Statements

Basis of Presentation

The interim unaudited condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) necessary to present fairly our results of operations for the three and six months ended June 30,March 31, 2019 and 2018, and 2017, our cash flows for the sixthree months ended June 30,March 31, 2019 and 2018, and 2017, and our financial position as of June 30, 2018March 31, 2019 have been made. The results of operations for such interim periods are not necessarily indicative of the operating results to be expected for the full year.

Certain information and disclosures normally included in the notes to the annual audited consolidated financial statements have been condensed or omitted from these interim unaudited condensed consolidated financial statements. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the periodyear ended December 31, 20172018 as filed with the SEC on August 13, 2018.October 17, 2019. The December 31, 20172018 balance sheet is derived from those statements.

Use of Estimates

The preparation of theaccompanying unaudited condensed consolidated financial statements have been prepared in conformityaccordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported amounts in the consolidated financial statements. Actual results could differ from those estimates.statements and accompanying notes. Significant estimates in the accompanying unaudited consolidated financial statements include the allowance for doubtful accounts and other receivables, inventory reserves and classifications, amortization period and recoverability of intangible assets, valuation of beneficial conversion features in convertible debt, valuation of loss contingencies, valuation of derivative liabilities, valuation of stock-based compensation and the valuation allowance on deferred tax assets. Actual results could differ from those estimates.

Segment Reporting

The Company views its operations and manages its business as one reportable segment. As a result, the interim unaudited condensed consolidated financial statements presented within relate to our principal operating segment.  Customers in the United States accounted for 100% of our revenues. We do not have any property or equipment outside of the United States.

Principles of Consolidation

The accompanying interim unaudited condensed consolidated financial statements include the accounts of Zero Gravity Solutions, Inc. and its wholly-ownedmajority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

For the purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at June 30, 2018March 31, 2019 and December 31, 2017.2018.

Inventory

Inventory is valued on a lower of first in, first out (FIFO) cost or net realizable value. Inventory consisted of:

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30,During the three months ended March 31, 2019, the Company recorded an impairment of inventory of $9,704. During the year ended December 31, 2018

(Unaudited) the Company recorded an impairment of inventory of $32,084. These were included in Costs of Sales.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred.

Depreciation is computed on a straight-line basis over estimated useful lives. Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Impairment of Long Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of ASCAccounting Standards Codification Topic (“ ASC”) 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.”  This guidance requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

Intellectual Property

The Company reviewed its intellectual property for impairment and determined that it had no recoverable value. $10,210 was recorded as impairment cost for the year ended December 31, 2018. 

Concentration of Credit Risk

The Company believes that its credit risk exposure is limited. The Company has never suffered a loss due to funds in excess balances.of FDIC limits and had no funds held in excess of FDIC limits at March 31, 2019.

Fair Value of Financial Instruments

The Company accounts for financial instruments under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC)(“FASB”) ASC 820, Fair Value Measurements.  This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2018March 31, 2019

(Unaudited)

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions.  Unobservable inputs require significant management judgment or estimation.  In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy.  In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement.  Such determination requires significant management judgment. 

As the Company'sCompany’s common stock is not traded in an active market, the Company estimates the fair value of its common stock (used in its Black Scholes option pricing model) pursuant to ASC 820. This estimation process maximizes the use of observable inputs, including the quoted price of the Company'sCompany’s common stock in an inactive market, the price of the Company'sCompany’s common stock determined in connection with transactions in the Company'sCompany’s common stock, and an income approach to valuation (a discounted cash flow technique that considers the future cash flows).

The carrying amounts of the Company’s accounts receivable and accounts payable approximate fair value due to the relatively short period to maturity for these instruments. The carrying value of the Company’s notes payable approximates fair value due to their short period to maturity and their stated interest rates, combined with historic interest rate levels. 

Revenue recognition and accounts receivableAccounting for Derivatives

WeThe Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income (expense). Upon conversion of a note where the embedded conversion option has been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related notes, derivatives, and debt discounts, and recognizes a net gain or loss on extinguishment.  Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.

The company has adopted FASB ASU 2017-11, which simplifies the accounting for certain equity-linked financial instruments and embedded features with down round features that reduce the exercise price when the pricing of a future round of financing is lower. This allows the company to treat such instruments or their embedded features as equity instead of considering them as a derivative. If such a feature is triggered the value is measured pre-trigger and post-trigger. The difference in these two measurements is treated as a dividend, reducing income. The value recognized as a dividend is not subsequently remeasured, but in instances where the feature is triggered multiple times each instance is recognized.

Advertising

The Company conducts advertising for the promotion of its products and services. In accordance with ASC 720-35, “Advertising Costs,” advertising costs are charged to operations when incurred. During the three months ended March 31, 2019 and 2018, such amounts aggregated $36,110 and $1,897, respectively.

Accounting for Leases

In March 2016, the FASB issued ASU No. 2016-02, Leases. The main difference between the provisions of ASU No. 2016-02 and previous GAAP is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. ASU No. 2016-02 retains a distinction between finance leases and operating leases, and the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right-of-use assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective for public business entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company's adoption January 1, 2019, did not have a material impact on the consolidated financial statements.

Legal Expenses

All legal costs are charged to expense as incurred.

Convertible Notes with Fixed Rate Conversion Options

The Company may enter into convertible notes, some of which may contain fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted, by the holder, into common shares at a fixed discount to the price of the common stock at the time of conversion. The Company measures the fair value of the notes at the time of issuance, which is the result of the share price discount at the time of conversion and records the premium to interest expense on the note issuance date.

Debt Issue Cost

Debt issuance cost paid to lenders, or third parties are recorded as debt discounts and amortized over the life of the underlying debt instrument.

Revenue Recognition and Accounts Receivable:

Effective January 1, 2018 (date of adoption), we recognize revenues from the sale of agricultural biotechnology products to distributors and customers pursuant to the provisions of ASC 606, “Revenue Recognition”From Contracts With Customers”.

Revenues for agricultural chemical products are recognized when title

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to the products is transferred which may be upon shipment to the customer or receipt by the customer of the product. Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

We recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The core principle of this Topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Revenue is recognized in accordance with the core principle by applying the following five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.

Revenues for agricultural chemical products are recognized when title to the products is transferred which may be upon shipment to the customer or receipt by the customer of the product. This satisfies the performance obligation on which we earn the transaction price. There was no cumulative effect of adopting ASC 606. Amounts billed to customers for shipping and handling fees are included in net sales, and costs incurred by the company for the delivery of invoiced goods are classified as cost of goods sold in our Statements of Operations.

The Company determined that no reserve for estimated product returns and allowances was necessary during the sixthree months ended June 30, 2018March 31, 2019 and 2017.2018. Determination of the reserve for estimated product returns and allowances is based on management's analyses and judgments regarding certain conditions. Should future changes in conditions prove management's conclusions and judgments on previous analyses to be incorrect, revenue recognized for any reporting period could be materially affected.

At June 30, 2018, one customer accounted for 94% of totalThe Company did not have accounts receivable. During the three and six months ended June 30, 2018, one customer accounted for 68.0% of net sales. During the three and six months ended June 30, 2017, three customers accounted for 67.9% of net sales, each representing 26.5%, 24.6%, and 16.8% respectively. 

receivable outstanding at March 31, 2019. At December 31, 2017, three2018, two customers accounted for 100% of total accounts receivable. Eachreceivable representing 78.1%, and 21.9%, respectively. During the three months ended March 31, 2019, one customer accounted for 97% of these threenet sales. During the period ended March 31, 2018, two customers represented 46.5%, 34.9%accounted for 100% of net sales, 75.0% and 18.6%25.0%, respectively.

The Company extends credit to customers generally without requiring collateral. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. The Company records an allowance for doubtful accounts when it is probable that the accounts receivable balance will not be collected. When estimating the allowance, the Company takes into consideration such factors as its day-to-day knowledge of the financial position of specific clients, and the industry and size of its clients. The allowancebad debt expense for doubtful accounts as of June 30,the three months ended March 31, 2019 and 2018 was $342 and December 31, 2017 was $0 and $32,663,$4,060, respectively.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2018March 31, 2019

(Unaudited)

Cost of salesSales

Cost of sales is comprised of material costs, invoiced shipping costs and royalty expense.  

Warrants

The Company recognizes the cost of warrants issued with debt as debt discount in the consolidated financial statements which is recorded at the warrants relative fair value which is measured based on the grant date fair value of the award. The Company estimates the fair value of each warrant at the grant date by using the Black-Scholes option pricing model.

Stock based compensationBased Compensation

The Company recognizes the cost of employee services received in exchange for an award of equity instruments in the consolidated financial statements which is measured based on the grant date fair value of the award. Stock based compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award (generally the vesting period). The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model.model using the simplified method to determine the term.

Costs equal to these fair values are recognized ratably over the requisite service period based on the number of awards that are expected to vest, or in the period of grant for awards that vest immediately and have no future service condition. The expense resulting from employee and share-based payments is recorded in general and administrative expense in 2018the three months ended March 31, 2019 and 2017.2018.

The Company also grants share-based compensation awards to non-employees for service provided to the Company. The Company measures and recognizes the fair value of such transactions based on the fair value of consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” ASU No 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. This guidance is applicable to the Company’s fiscal year beginning January 1, 2019. The implementation did not have a material effect on its consolidated financial statements.

Loss per Share

Loss per share is calculated by dividing the Company’s net loss by the weighted average number of common shares outstanding during the period. Diluted earnings loss per share is calculated by dividing the Company’s net income (loss) by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity instruments. The effect of the inclusion of the dilutive shares would have resulted in a decrease in loss per share. Accordingly, the weighted average shares outstanding have not been adjusted for dilutive shares. Outstanding warrants, stock options and convertible debt are not considered in the calculation as the impact of the potential common shares (15,512,956,(totaling 16,206,685, shares and 14,044,84216,952,975 shares for the sixthree months ended June 30,March 31, 2019 and December 31, 2018, and 2017, respectively), would be to decrease net loss per share.

Research and Development

Research and development costs are charged to expense as incurred.

Warranty Expense

The Company'sCompany’s distribution agreements provide for a warranty on products sold. As sales under such distribution agreements have been nominal throughduring the three months ended March 31, 2019 and 2018, and 2017, there has been no warranty expense in 2018during the three months ended March 31, 2019 or 2017.2018. A provision for estimated future warranty costs is to be recorded as cost of sales when products are shipped, and warranty costs are to be based on historical trends in warranty charges as a percentage of gross product shipments. A resulting accrual is to be reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates.

Income Taxes

The Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2018March 31, 2019

(Unaudited)

The Company does not have an accrual for uncertain tax positions as of June 30, 2018March 31, 2019 and December 31, 2017.2018.  The Company files corporate income tax returns with the Internal Revenue Service and the Statesstates where the Company determines it is required to do so.  The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At June 30, 2018,March 31, 2019, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the three or six months ended June 30, 2018March 31, 2019 or 2017.2018. 

ReclassificationsInvestments

Certain amountsWe have an equity investment in a privately held entity. We account for investments either under the Decemberequity method or cost method of accounting depending on our ownership interest and the level of our influence in each joint venture. Investments accounted for under the equity method are recorded based upon the amount of our investment and adjusted each period for our share of the investee's income or loss. Cost method investments are recorded at cost less any impairments. All investments are reviewed for changes in circumstance or the occurrence of events that suggest an other than temporary event where our investment may not be recoverable. All investments were carried at a zero value as of March 31, 2017 balance sheet have been reclassified from accounts payable, related party to accrued interest, related party to conform to the June 30, 2018 presentation.  This reclassification had no effect on current liabilities in either period presented.2019 (See Note 4).

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASC 606, “Revenue from Contracts with Customers”FASB ASCs which has been further clarified and amended. The core principle of the new standard is for companiesare or were are not effective until after March 31, 2019 are not expected to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and clarify guidance for multiple-element arrangements. Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Statement of Financial Position. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company has finalized its assessment of ASC 606 and determined there will be no materialsignificant effect on ourthe Company’s consolidated financial position andor results of operations. The timing and amount of revenue recognized based on the new standard is consistent with the revenue recognition policy under previous guidance, however, certain additional financial statement disclosures will be required beginning with 2018 reporting, including additional disaggregated view of revenue. We have adopted the new standard effective January 1, 2018, using the modified retrospective transition method.

In March 2016, the FASB issued ASU No. 2016-02, Leases. The main difference between the provisions of ASU No. 2016-02 and previous U.S. GAAP is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU No. 2016- 02 retains a distinction between finance leases and operating leases, and the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right-of-use assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective for public business entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company has not finalized the analysis to determine the effect of the standard, but believes that it will not have a material impact on the statement of operations.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2018March 31, 2019

(Unaudited)

NOTE 2 – PROPERTY AND EQUIPMENT

NOTE 3 – RELATED PARTY NOTES AND TRANSACTIONS

Convertible Note Payable

The following descriptions of convertible notes and notes payable refer to notes issued to related parties of the Company. For a description of convertible notes and notes payable to non-related parties of the Company see Note 5.

Convertible Notes Payable to Related Parties

NOTE 4 – COMMITMENTS

Lease Commitments

The Company leases its office, building, and laboratory space under short term leases. These leases are renewable either monthly or annually. The Company also has a two-year lease for its production facility and warehouse in Okeechobee, which began September 1, 2016 and will expireexpired August 31, 2018. This lease was extended through December 31, 2019 and then again through August 31, 2020. We are currently month to month on this lease. Lease expense was $106,900$55,967 and $46,625$54,325 for the periodsthree months ended June 30,March 31, 2019 and 2018, and 2017, respectively.

License and Business Development Agreement

On February 20, 2018, BAM Agricultural Solutions, Inc. (“BAM”), a wholly-owned subsidiary of the Company, and Pedro Lichtinger Waisman, Isaac Lichtinger Waisman and Victor Lichtinger Waisman (the(together the “Lichtinger Group”) entered into a License and Business Development Agreement Mexico, effective as of February 13, 2018 (the “Agreement”). Following consummation of the Agreement, the Lichtinger Group began to formformed a company in Mexico, Agro Space Tech SA de CV de RV (“Agro Space”), to which BAM will receivewas allocated a twenty percent (20%) equity ownership interest. The Lichtinger Group will contribute up to $500,000 in capital into Agro Space, with BAM having no initial capital requirement. If Agro Space requires more than the initial $500,000 capital contribution, BAM will have a right to contribute capital pro rata and maintain its ownership percentage. As of June 30, 2018 the formation of Agro Space has not been completed and the investment has not been made.

The Agreement provides Agro Space with the exclusive right to import, package, sell, and distribute BAM’s product lines and promote its brand, as well as other “white label” brands, as they are introduced, in the Mexican markets, and a limited manufacturing right to modify the presentation of BAM’s products and dilute such products, all during the term of the Agreement. BAM will retain the right to all of its intellectual property, including any materials produced in connection with the Agreement and BAM’s products, and Agro Space will have a royalty-free right to reproduce, translate, summarize, or otherwise use such materials for the sole purpose of performing pursuant to the Agreement. The exclusivity of the rights licensed to Agro Space are conditioned upon (i) Agro Space meeting specified revenue targets beginning on the third anniversary following the successful completion of specified local trials through the tenth anniversary thereof; and (ii) the ability for Agro Space to expand the business to target and add a specified number of crops during each of the five (5) years following the successful completion of specified local trials.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2018March 31, 2019

(Unaudited)

In addition to BAM receiving an ownership interest in Agro Space, Zero Gravity Solutions, Inc. ("Company")the Company received $100,000 from the Lichtinger Group following the execution of the Agreement, to purchase shares of the CompanyCompany’s common stock pursuant to the Company’s 2016 private offering of shares of its common stock for $3.00 per share. The Agreement further provides that Agro Space will pay to BAM up to $900,000, in the aggregate, upon reaching specified milestones based on completing government/academic trials and revenue hurdles.

Research Commitment

In January 2016, the Company entered into a Reimbursable Space Act Agreement (the “SAA”) with the National Aeronautics and Space Administration Ames Research Center (“NASA ARC”).  Pursuant to the SAA, NASA ARC will evaluate the Company’s nutrient delivery system for commercial agriculture and NASA applications and the potential development of new agricultural technologies and products.  The Company provides funding and reimbursement for the costs incurred by NASA ARC under the SAA, and owns any resulting intellectual property created pursuant to the SAA.  The Company paid NASA ARC a total of $373,750 in fiscal 2016, which served as reimbursement for NASA ARC’s estimated expenses to carry out its first-year responsibilities pursuant to the SAA.  The SAA remains in effect until the earlier of completion of all obligations contemplated in the SAA or five years from the date of agreement. For the periodperiods ended June 30,March 31, 2019 and 2018, and 2017, $0 and $29,610 respectively, wasthere have been no amounts expensed to research and development expense pursuant to the SAA.

NOTE 5 – NOTECONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE

On June 29, 2018, the Company initiated a new private offering of its securities (the “June 2018 Offering”) to certain prospective accredited investors, including certain members of the Board of Directors and/or their respective affiliates (See Note 3), consisting of up to $2,000,000 of 10% secured convertible promissory notes (the “June 2018 Offering Notes”), and two-year warrants to purchase up to 2,000,000 shares of the Company's common stock at an exercise price of $1.00 per share (the “June 2018 Offering Warrants”). The June 2018 Offering terminated on July 31, 2018, and consisted of one or more closings.

The following descriptions of convertible notes and notes payable refer to notes issued to non-related parties of the Company. For a description of convertible notes and notes payable to related parties of the Company, see Note 3.

All of the above July 2018 notes were converted into new loans with the Series A and Series B offerings in the second quarter 2019.

The Company hasreceived, in the aggregate, $550,000 from seven current shareholders and issued June 2018 Offering Notes of $550,000 in exchange therefore, and June 2018 Offering Warrants to purchase, in the aggregate, up to 550,000 shares of the Company’s common stock. The relative fair value of the warrants of $228,049 and offering costs of $16,500 were recorded as debt discounts and are accreted over the term of the note. Pursuant to the June 2018 Offering, in the aggregate, the Company issued June 2018 Offering Notes having an aggregate principal balance of $2,050,000, and June 2018 Offering two year warrants to purchase up to 2,050,000 shares of the Company’s common stock exercisable at $1.00 per share. The notes can be converted at the holders’ option at $3.00 per share, unless the Company issues shares at a subsequent lower price, then the notes convert at that subsequent lower price. See Note 3 for $1,500,000 of June 2018 Offering Notes received by related parties. All June 2018 Offering Warrants issued were accounted for at their relative fair value of $853,518.  These values along with the related offering costs of $61,500, are recorded as debt discounts and are accreted over the term of the note.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

On or about December 11, 2018, the Company and an accredited investor, Crossover Capital Fund I, LLC (the “Investor”), entered into a Securities Purchase Agreement, pursuant to which the Investor agreed to invest $125,000 into the Company in exchange for (a) a Convertible Promissory Note of the Company (the “First Note”) having an aggregate principal amount of $136,000 which is convertible into common stock of the Company the Investor shall have the right at any time on or after the issue date to convert all or any part of the outstanding note payable for financing corporate insurance premiums. The originaland unpaid principle value was $223,707. The note carries a rate ofamount and accrued and unpaid interest of 7.5%the First Note into fully paid and non-assessable shares of common stock as such, and the conversion price shall be the lesser of $3.00 or 65% multiplied by the market price) and (b) a Common Stock Purchase Warrant to purchase up to 100,000 shares of common stock. The First Note carried an original issue discount of $11,000.

On or about January 14, 2019, the Company and the Investor, entered into a Securities Purchase Agreement, pursuant to which the Investor agreed to invest $82,000 into the Company in exchange for (a) a Convertible Promissory Note of the Company (the “Second Note”) having an aggregate principal amount of $94,500 plus a penalty in the amount of $10,000 for a total of $104,500, which is dueconvertible into common stock, the Investor shall have the right at any time on or after the issue date to convert all or any part of the outstanding and unpaid principle amount and accrued and unpaid interest of this the Second Note into fully paid and non-assessable shares of common stock as such, and the conversion price shall be the lesser of $3.00 or 65% multiplied by the market price) and (b) a Common Stock Purchase Warrant to purchase up to 100,000 shares of common stock. The Second Note carried an original issue discount of $12,500 plus $2,000 of legal fees and the remaining initial discount was $56,002 for the relative fair value of the warrants and $23,998 related to the embedded conversion option derivative liability.

On or about March 2019, a shareholder loaned the Company $50,000 and in November 2018.exchange was issued 1,000 shares of the Company’s common stock for each week outstanding. The loan was outstanding for just over two weeks so 2,000 shares of the Company's common stock in total were issued and $3,608 was recorded as debt discount and amortization to interest expense as of March 31, 2019.. (See Note 6)

Fair Value Measurements – Derivative Liability – December 2018 and January 2019 convertible notes payable to non-related party –discussed above

Embedded Conversion Option Derivatives

Due to the conversion terms of certain promissory notes, the embedded conversion options met the criteria to be bifurcated and presented as derivative liabilities. The Company calculated the estimated fair values of the liabilities for embedded conversion option derivative instruments at the original note callsinception dates using the Monte Carlo option pricing model using the share prices of the Company’s stock on the dates of valuation and using the following ranges for eleven paymentsvolatility, expected term and the risk-free interest rate at each respective valuation date, no dividend has been assumed for any of $19,353. the periods:

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

Fair value measures

The balanceaccounting guidance for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements.  Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.  The accounting guidance established a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available.  This hierarchy prioritizes the inputs into three broad levels as follows.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at June 30, 2018 was $96,764.fair value.  An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Assets and liabilities measured at fair value on a recurring and non-recurring basis consisted of the following at March 31, 2019:

The following is a summary of activity of Level 3 liabilities for the periods ended March 31, 2019:

Changes in fair value of the embedded conversion option liability are included in other income (expense) in the accompanying consolidated statements of operations.

All of the above notes were converted into new loans with the Series A and Series B offerings in the second quarter 2019 (See Note 7).

In December 2017, the Company received $200,000 from an investor, and in exchange the Company issued the investor (a) an unsecured promissory note dated December 14, 2017, maturing on December 13, 2019, in the principal face amount of $200,000, and (b) a warrant dated December 18, 2017 to purchase up to 50,000 shares of the Company’s common stock. The note bears interest at the rate of ten percent (10%) per annum, payable quarterly. The note is repayable in full by the Company, plus all unpaid interest thereon, by the maturity date. Prepayment of all unpaid principal and interest on the note may be made by the Company prior to the maturity date, provided that the holder thereof shall receive a minimum amount of interest equal to one year of interest under the note, based on the full principal amount. The warrants are exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. The relative fair value of the debt and warrants recorded resulted in a debt discount of $18,652 upon execution of the promissory note. For the three and six months ended June 30,March 31, 2019 and 2018, accretion of the debt discount was $2,325 and $4,625 respectively,$2,300, included in other expenses on the statements of operations.

On or about January 18, 2018, the Company received $100,000 from an accredited investor, and in exchange the Company issued to the investor (a) an unsecured promissory note dated January 19, 2018, maturing on January 18, 2020, in the principal face amount of $100,000, and (b) a warrant dated January 19, 2018 to purchase up to 10,000 shares of the Company’s common stock. The note bears interest at the rate of ten percent (10%) per annum, payable quarterly. The note is repayable in full by the Company, plus all unpaid interest thereon, by the maturity date. Prepayment of all unpaid principal and interest on the note may be made by the Company prior to the maturity date, provided that the holder thereof shall receive a minimum amount of interest equal to one year of interest under the note, based on the full principal amount. The warrants are exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. The relative fair value of the debt and warrants recorded resulted in a debt discount of $7,124 upon execution of the promissory note. For the three and six months ended June 30,March 31, 2019 and 2018, accretion of the debt discount was $888$878 and $1,589$703, respectively, included in other expenses on the statements of operations. This note plus the accrued and unpaid interest was subsequently converted into a Series A Note. (See Note 7).

The Company has an outstanding note payable for financing corporate insurance premiums. The note carries a rate of interest of 8.75% and is due in November 2019. The note calls for eleven payments of $21,254. The balance at March 31, 2019 and December 31, 2018 was $168,819 and $223,482, respectively.

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2018March 31, 2019

(Unaudited)

NOTE 6 – EQUITY

2018 transactions:

Common Stock

Private placement offeringsStock issued for services

During 2016,the three months ended March 31, 2019, the Company commenced a private offering of up to $10,000,000issued 45,000 shares of the Company’s securitiescommon stock for $3.00 per shareservices. These shares were valued at $79,950 based upon the current stock price at the time of common stock.  Pursuant toissue.

Stock issued for loan costs

During the 2016 offering, during the sixthree months ended June 30, 2018,March 31, 2019 the Company sold 303,718issued 2,000 shares of the Company’s common stock received gross proceeds of $911,154, paid cash offeringas loan costs of $25,680, and issued fully vested, non-forfeitable warrants to purchase up to 7,490 shares of common stock with an exercise price of $3.00 per share to the placement agent. These warrants are netted in additional paid in capital as non-cash offering costs of the placement of $5,771.  Effective on June 28, 2018, the Company terminated its 2016 private offering.valued at $3,608.

Warrants

Warrants cashless exercise

During the three months ended March 31, 2019, three former employees exercised 475,500 of their warrants in a cashless exercise resulting in the issuance of 306,195 of the Company’s common shares.

Warrants issued for services

During the six monthsperiod ended June 30, 2018,March 31, 2019, the Company issued fully vested, non-forfeitable five-year warrants to purchase up to 290,00075,000 common shares at an exercise price of $3.00 per common share to employees and consultants for services rendered. The value of those services was $223,119,$57,570, which was recorded as general and administrative expense. Additionally, the Company recorded $55,081 of expense related to prior warrants issued for services.

Warrants issued with debt

In connection with the issuance of a $100,000 unsecured promissory note datedOn or about January 18, 2018,14, 2019, the Company issuedand Crossover Capital Fund I, LLC., also referred to herein as the “Investor”, entered into a warrant dated January 19, 2018Securities Purchase Agreement, pursuant to which the Investor agreed to invest $80,000 into the Company in exchange for (a) a Convertible Promissory Note of the Company also referred herein as the “Second Note”, having an aggregate principal amount of $94,500 plus a penalty of $10,000 for a total of $104,500. This note is convertible into common stock and the Investor shall have the right at any time on or after the issue date to convert all or any part of the outstanding and unpaid principle amount and accrued and unpaid interest of the Second Note into fully paid and non-assessable shares of common stock. The conversion price shall be the lesser of $3.00 or 65% multiplied by the market price. (b) a Common Stock Purchase Warrant to purchase up to 10,000100,000 shares of the Company’s common stock. The warrants are exercisable within 5 years of issuance into shares of the Company’s common stock, at $3.00 per share. The relative fair value of the debt and warrants recorded resulted in debt discount of $7,124 upon execution of the promissory note.

Warrants issued with debt – related party

In January 2018, the Company issued to its in-house counsel, in connection with the issuance of an unsecured promissory note in the principal face amount of $100,000, a five-year warrant to purchase up to 5,000 shares of the Company’s common stock at an exercise price of $3.00 per share.$1.75. The Second Note carried an original issue discount of $14,500 plus there were $2,000 of legal fees and the remaining initial discount was $56,002 for the relative fair value of the warrant recorded was $3,831 upon execution ofwarrants and $23,998 related to the promissory note. embedded conversion option derivative liability.

In January 2018, the Company issued to Rio Vista a five-year warrant to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $3.00 per share in connection with a $500,000 unsecured promissory note. The relative fair value of the debt and warrants recorded resulted in debt discount of $35,590 upon execution of the promissory note.

In March 2018, in connection with issuance of a $200,000 unsecured promissory note to a member of its Board of Directors, the Company issued five-year warrant to purchase up to 20,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the debt and warrant recorded resulted in debt discount of $14,281 upon execution of the promissory note.

In March 2018, in connection with issuance of a $200,000 unsecured promissory note to an accredited investor, the Company issued five-year warrant to purchase up to 20,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the debt and warrant recorded resulted in debt discount of $14,279 upon execution of the promissory note.

In May 2018, in connection with issuance of a $300,000 unsecured promissory note to an accredited investor, the Company issued five-year warrant to purchase up to 30,000 shares of the Company’s common stock at an exercise price of $3.00 per share. The relative fair value of the debt and warrant recorded resulted in debt discount of $21,452 upon execution of the promissory note.

In June 2018, in connection with issuance of a $1,000,000 unsecured convertible promissory note to an accredited investor made pursuant to the June 2018 Offering, the Company issued a two-year warrant to purchase up to 1,000,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The relative fair value of the debt and warrant recorded resulted in debt discount of $414,416 upon execution of the promissory note. 

ZERO GRAVITY SOLUTIONS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2018March 31, 2019

(Unaudited)

The following is a summary of the Company’s warrant activity for the yearthree months ended June 30, 2018:March 31, 2019: